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How to Manage your Bookkeeping Effectively

10th Nov 2014
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Keeping accurate financial records is vital to the success of any small business. If you don’t maintain your bookkeeping records diligently, you are basically in the dark about your profit and loss position, what you owe in taxes and whether ultimately you are running a viable business.

Unless you have some direct knowledge of bookkeeping yourself it is better to outsource this task to avoid expensive mistakes. In addition, if you can keep consistency across who does your bookkeeping on an ongoing basis, as Arnold Hill & Co points out, this brings a level of familiarity and continuity.  

Why then is bookkeeping so integral to the success of your business?

Your Current Financial Position

Bookkeeping is the recording of all the financial transactions, incoming and outgoing, that take place in your company. This is either recorded manually or more likely in accounting software. From these records accountants can draft financial statements and generate reports. Without an accurate record of your expenses and sales you won’t know whether your company is in the red or black.

Keeping Track of Cash Flow

In any small business keeping a tight rein on your cash flow position can be the stark contrast between seeing out the month successfully or your business going under. If you aren’t able to cover the invoices from your suppliers or to meet payroll demands then you will quickly go out of business.

Your accounts let you see whether you are in profit and by how much. If your profit is unsufficient, at least if you are aware of the situation, you can either look at cutting costs or charging more for your products and services.

Investor Requirements

If you need to find investors for your business and are considering taking out a bank loan, the bank will need to see evidence of how sound your business is. They will therefore require information that will have to be generated from your bookkeeping, including cash flow reports, statements and evidence of your profit and loss position.

Tax Liabilities

You will need accurate bookkeeping records to calculate your tax position at year end. There are several different taxes that businesses are liable for and it is often wise to seek professional advice. Mercer & Hole highlight that companies can legally minimise what they pay and by employing a professional in the field they can also streamline the process.

VAT Registered

If your business is VAT registered you will also need to provide detailed sales and purchase records when your VAT return is completed annually.

Companies House

If you are a Limited company your business will be registered at Companies House. Amongst other responsibilities there is also a legal requirement to send a copy of your statutory accounts to them once a year.

As we have seen from these six key areas it is vital that bookkeeping is seen as a high priority within your business. It is an area that is easy to neglect when you are busy with a number of other high priorities, however if you let your record keeping lapse it can quickly get out of hand and lead to a catastrophic outcome for your business.

If on the other hand, financial matters are dealt with effectively from day one, you are much more likely to create a thriving, successful business. If you feel that bookkeeping is one of your strengths or you can afford to employ a full time accounts person, by all means keep it in-house. However, if record keeping is not one of your strengths, the initial outlay to outsource your bookkeeping will be balanced out by the savings you will make. This is not only in terms of money saving, as we have seen outlined above, but also in time saving, as you will be able to focus on other areas of your business, areas where your key strengths lie.

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Man of Kent
By Kent accountant
10th Nov 2014 12:37

Erm...wrong forum?

@James - most readers on here are accountants so have a pretty good understanding of bookkeeping.

Also check your vat facts ;)

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